More Banks Exposed to Similar Factors That Led to SVB Collapse

After an intense analysis of the collapse of Silicon Valley Bank (SVB), it has been discovered that a large number of other United States banks have similar problems and may equally collapse.

For now, economists, from a case study of the recently defunct SVB, have observed about 190 banks that are at potential risk of impairment with a large percentage of them with lower capitalization than the crypto-related bank.

According to a recent case study, “Even if only half of uninsured depositors decide to withdraw, almost 190 banks are at a potential risk of impairment to insured depositors, with potentially $300 billion of insured deposits at risk. If uninsured deposit withdrawals cause even small fire sales, substantially more banks are at risk.”

SVB Client’s Fears Loss of Assets

Specifically, Silicon Valley Bank collapsed as a result of a mixture of losses coupled with uninsured leverage, and an extended loan portfolio amongst other factors. With all of these factors put together, the bank’s assets began to decrease by boosting interest rates. Once customers noticed the trend, they became cautious and began to withdraw their uninsured deposits.

Silicon Valley Bank clients probably bore in mind the unexpected implosion of FTX exchange, the Bahamian-headquartered digital assets service provider. In no distant time, the bank’s branch in the United Kingdom was shut down by the Bank of England (BoE) which cited that the former had a limited presence in the country in addition to no critical function that supports the region’s financial system.

Next, SVB Financial Group filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York. However, the bankruptcy filing and proceedings were not connected to the other SVB entities like Silicon Valley Bank N.A. or SVB Private. The Federal Deposit Insurance Corporation (FDIC) has stepped in to protect SVB customers and find a buyer for the bank.

In the present day, the economists concluded that a look into the asset books and market value losses of most of these firms are indications that the U.S. banking system may be exposed to more fragility in terms of uninsured deposits. 

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